Beneficial Ownership In South Korea – Detailed Guide

Beneficial ownership in South Korea refers to identifying the individuals or entities that ultimately own or control a company or asset. According to Article 5-2 of the Act on Report on, and the Use of Specific Financial Transaction Information, financial institutions must identify the beneficial owner who is a legal person or a business. 

The phrase “beneficial owner” is defined in the revised Presidential Enforcement Decree1 of the above Act as:

• The natural person who owns 25% or more of the stock is a legal person or entity.
•  If there is uncertainty as to whether the person named in (a) is the beneficial owner, or if there is no natural person with a 25% or more ownership, the natural person who exerts control over the legal person or business through other methods.
• In the absence of a natural person, the top executive of the legal person or business.

While the beneficial owner is always a natural person, having someone who legally owns 25% of the shares is thought to be sufficient for identifying the beneficial owner.

The question of whether someone is the ultimate owner by exerting de facto control over a legal corporation is only examined if there is a reasonable doubt that the person named as the legal owner is not the beholder.

IS IT MANDATORY TO MAINTAIN INFORMATION ON BENEFICIAL OWNERSHIP IN SOUTH KOREA?

Current laws and regulations do not mandate legal companies to keep track of beneficial ownership, with the exception of those subject to anti-money laundering requirements. As a result, beneficial ownership information does not need to be maintained in South Korea.

Legal entities, such as publicly listed companies and limited liability companies, must maintain a list of shareholders and members, including their names and percentages of shares owned. Any changes in share ownership must also be reported to the legal body by shareholders and members. However, if the shares are held on behalf of a third party, there is no need to contact the organization.

IS IT MANDATORY TO MAINTAIN INFORMATION ON BENEFICIAL OWNERSHIP IN SOUTH KOREA?

In Korea, responsible authorities have limited access to beneficial ownership information. There is no beneficial ownership register, legal companies are not obligated to keep beneficial ownership information, and financial institutions’ information does not necessarily contain the true beneficial owners.

In the case of personal trusts, trustees are not required by law to keep documents on the trust’s beneficiaries or settlers. Nonetheless, given the trustee’s obligations when managing the trustee, it is possible that in practice, the trustee has information on all parties to the trust.

BENEFICIAL OWNERSHIP INFORMATION OF A TRUST IN SOUTH KOREA

The Trust Act governs domestic trusts in South Korea. Personal and commercial trusts are also permitted. There is no ban on the administration of foreign trusts, in which case the Trust Act’s requirements also apply.

In the case of personal trusts, trustees are not required by law to keep documents on the trust’s beneficiaries or settlers. Nonetheless, given the trustee’s obligations when managing the trustee, it is possible that in practice the trustee has information on all parties to the trust.

On the other hand, business trusts can only be administered by licensed banks and financial institutions. They are governed by the Financial Investment Services and Capital Markets and are subject to anti-money laundering regulations, which include customer due diligence.

Furthermore, financial institutions are obligated to identify and verify the identity of their clients in trust-related transactions under the Act on Reporting and Use of Certain Financial Transactions Information (FTRA) and the anti-money laundering statute. In the case of trusts, customer identification refers to the identification of all beneficiaries.

The statute does not define which competent authorities should have timely access to trust beneficial ownership information. The Financial Supervisory Service (FSS) may seek information from business trusts at any time, and the Financial Intelligence Unit (KoFIU) may receive suspicious transaction reports. As a result, this information can be shared with other authorities. Tax officials may also inquire about trusts.

With that being said, the current legal framework does not require adequate transparency regarding the beneficial ownership and control of trusts, while law enforcement agencies have the authority to obtain information on legal arrangements, there is little information available regarding the beneficial owners of legal arrangements.

WHAT ARE THE CONDITIONS THAT GENERALLY REQUIRE BENEFICIAL OWNERSHIP IN SOUTH KOREA?

Authorities must have access to important information, including beneficial ownership, in order to conduct investigations into corruption and money laundering. There is no centralized database in Korea that local or international authorities can consult for information on legal ownership and ultimate control.

Domestic authorities can review publicly available registers providing legal ownership information or seek information from the Financial Intelligence Unit (KoFIU)) and other financial regulatory entities.

There are no significant barriers to information sharing between local and international agencies. The National Tax Service (NTS), KoFIU, and the Public Prosecutors’ Office deal with foreign cooperation requests; however, there is no comprehensive instruction on the methods of seeking information.

Refer to the South Korea company formation guide to know more about the process of establishing a new business here.